Wednesday, 2 October 2013

New Schneiderman suit proves old Schneiderman settlement was phony all along

New York State’s turncoat attorney general, Eric Schneiderman, is gearing up to sue Wells Fargo for mortgage-related fraud, just over a year after one Eric Schneiderman settled with Wells Fargo on mortgage-related fraud based on WF’s promise to be good. What is wrong with this picture?

Here’s the lead paragraph from the NY Times article:

Fielding complaints from borrowers struggling to save their homes, New York’s top prosecutor is preparing a lawsuit against Wells Fargo, accusing the bank, the nation’s largest home lender, of flouting the terms of a multi-billion-dollar settlement aimed at stanching foreclosure abuses.

What the article never asks, of Schneiderman or itself, is how he can justify in retorspect his decision to let the bank off the hook through the so-called 49-state agreement, given the excellent chances that it and others would continue with the rip-offs.

Schneiderman was sitting with a very powerful hand of cards as New York State A-G because he could easily have prosecuted the hustler banks for both civil and criminal penalties, forcing a much needed shake-up in their corporate leadership and probably putting a few of them behind bars—a bracing remedy for fraud that is sadly lacking in the post-collapse scenario.

Instead, he caved to pressure from the White House and in exchange got a cool seat next to Michelle at the state of the union address and appointment to head a phony mortgage fraud investigative commission that has no staff and no offices. In short, he sold out the public interest for personal ambition. Oh, for an Eliot Spitzer when we need one.

The package sold to us at that time was that the banks would come up with a pot of money that sounded like a lot (but which many commentators immediately pointed out was in reality a lot less because it was calculated based on things the banks would do anyway or losses that others would shoulder). In addition, the banks—which, let us briefly recall, had caused the entire world economy to collapse through their reckless gambling—would promise to clean up their act and stop scamming people out of their homes.

As plenty of knowledgeable people pointed out at the time, the banks had very little incentive to do any such thing because behaving was costly while fraud continued to be profitable. Here is what one commentator wrote in April, 2012:

There has been a great deal of discussion of the many deficiencies of the mortgage settlement, but its biggest has gone pretty much unnoticed. It isn’t just that the settlement gives the banks a close to free pass for past predatory, illegal conduct, but it also has such lax servicing standards and weak enforcement provisions so as to give the banks license to carry on with servicing abuses.

And since Schneiderman (and Obama) were failing to extract any real penalties from the banks, the temptation was enormous for them to maintain business as usual—which they then did, as confirmed by the upcoming Wells Fargo lawsuit.

What was that bad behavior exactly? Well, at the Times points out, a lot of it involves pretending to give distressed homeowners loan modifications, but instead repeatedly ‘losing’ the relevant documents that they submit time and again, failing to inform them of the missing papers, charging them late fees, and eventually moving to foreclose on them, which is far more profitable than helping them keep their payments current. Here’s what the article says was included in the original settlement agreement that Schneiderman says Wells Fargo broke:

The settlement guidelines include requirements that banks provide homeowners with a single point of contact and notify borrowers of missing documentation within five days.

Wow, imagine that: banks had to promise in writing not to give people trying to pay their mortage the run-around and to establish an actual person responsible for their entire file, instead of diverting them to a call center in Bangladesh as they fight to avoid eviction. And even that was too much for the financier mafia.

It will be interesting to see if Schneiderman has figured out the Charlie Brown-Lucy game Wells is playing with him or whether he will ‘settle’ yet again, extract a desultory fine and let the banksters get right back in the game of torturing homeowners further for a few extra bucks.